(Bloomberg) -- Nordstrom Inc. shares soared the most since May 2000 after the department-store chain put to rest -- at least for now -- some of the concerns that had been swirling about the profitability of its off-price division.
The company also reported an outlook for the coming year that was much rosier than what analysts had been expecting. And investors were cheered by the progress Nordstrom made reducing its debt levels, which executives said will probably allow the company to resume returning cash to shareholders in the first quarter of the fiscal year ending in January 2023.
Nordstrom needed a strong quarter.
The company has been recovering more slowly from the pandemic than peers and its shares have trailed those of competitors such as Macy's Inc., Dillard's Inc. and Kohl's Corp.
In the previous reporting period, Nordstrom said that poor inventory planning at its off-price Rack stores dragged on revenue growth in the third quarter, raising concerns among investors about how executives were managing pandemic-related supply chain problems.
On Tuesday, Nordstrom executives said they had a better handle on inventory and that Rack sales had better momentum, although they still declined compared to the same quarter before the pandemic struck.
The shares rose as much as 36% to $26.51, their highest level since November. The stock was down 14% this year through Tuesday.
Rack's “efforts to raise prices, increase product selection and invest in e-commerce appear to be bearing fruit, likely putting an end to speculation that it might be separated from Nordstrom's full-price operations,” Morningstar Inc. analyst David Swartz wrote in a research note.
In the coming year, “off-price is also likely to gain from excess inventory due to industrywide shipping delays in 2022, and we believe it could see more traffic as consumers battle inflation, particularly as gas prices rise,” Bloomberg Intelligence analyst Hoai Ngo wrote in a research note.
Despite the progress in the fourth quarter, Nordstrom's sales overall still trailed the same period in the January 2020 fiscal year, the company said.
Nordstrom forecasts revenue growth, which includes retail sales and credit-card revenue, of 5% to 7% for the current fiscal year versus the year-earlier period. That's above the 3.1% growth that analysts were expecting.
“We remain sidelined absent greater visibility/reduced volatility before we can determine whether the FY guide will prove [a] new base, one-time achievement or missed target,” BMO Capital Markets analyst Simeon Siegel wrote.
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